Spice Company Issued $200,000 of 10 Percent First Mortgage Bonds

Multiple Choice

Spice Company issued $200,000 of 10 percent first mortgage bonds on January 1,20X4,at 105.The bonds mature in 10 years and pay interest semiannually on January 1 and July 1.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on December 31,20X8,for $125,000.Pumpkin owns 75 percent of Spice's voting common stock.
-Based on the information given above,what amount of premium on bonds payable will be eliminated in the preparation of the 20X8 consolidated financial statements?

A) $3,500
B) $2,800
C) $5,000
D) $2,500